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An Overview of China Lottery Industry
Market Scale
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International Lottery Associations

China’s Lottery Market Achieved Sales of over RMB382 billion in 2014

2014 was another record year for the China lottery market. According to data published by the PRC’s Ministry of Finance, total lottery sales reached RMB382 billion. Sales increased by RMB73 billion from the prior year, representing an annual growth rate of approximately 24%. According to figures published by Sina Lottery, this growth enabled the lotteries to distribute over RMB102 billion to good causes during 2014, the largest amount in the lotteries’ history.

As shown in the accompanying chart, the lottery has delivered ever increasing sales between 2010 and 2014, growing at a compound rate of approximately 23% in this period. This growth has been driven by a number of factors including growth in disposable income, increased prize payout ratios, the introduction of more appealing products as well as changes to the retail distribution network through the nascent interface between the retail network and remote channels.

Despite the impressive growth of the Welfare and Sports lotteries in recent years, compared with other countries, China’s lottery participation rates are at an extremely low level. This is reflected in China’s ratio of lottery gross win (stakes less prizes) to GDP being far lower than in other countries in the region. This lack of penetration by the regulated products is driven by a number of factors which include constraints on distribution with respect to low numbers of shops per capita and the nascent stage of development of the remote channel, gaps in terms of the breadth of certain products (e.g. sports betting) and finally, particularly for the products with higher play frequency such as sports betting, virtual sports betting and high frequency games, payout ratios which are not sufficiently high to effectively compete with the illegal market.

The authorities in China are committed to channeling the existing vast underground gaming revenues away from the illegal market and into the legal and regulated lottery network. This process is already well underway and is a vital step to ensure that the vulnerable in Chinese society are adequately protected, that the potential for corruption is minimised and, importantly, to increase the funding available for good causes. Through further initiatives such as continued increases in prize payout ratios, the introduction of new rapid-draw lottery and virtual sports betting games, further expansion of the sports betting network and the planned development of online and mobile distribution systems, the Chinese authorities will make the regulated lottery even more competitive and appealing and secure its continued rapid growth.

Industry highlights

These lotteries have four main product categories: draw games that are either traditional in nature with a daily or weekly draw pattern as well as modern high frequency games featuring multiple draws per hour (Lotto), sports betting (Sports), video lottery terminals (VLT) and instant scratch cards (Scratch).

The overall growth of lottery sales in China during 2014 of approximately 23% masks significant differences within each of the product categories. Whilst Sports and VLT enjoyed very strong growth, Lotto grew more modestly and Scratch posted another year of declining sales figures.

Given the very strong sales growth of the Sports product during 2014, reflecting the popularity of the 2014 FIFA World Cup tournament, the Sports Lottery grew considerably more rapidly than the Welfare Lottery during 2014. In absolute terms, the sports lottery generated approximately 60% of national ticket sales growth during 2014.

Performance by Product Type

1. Sports

Only the Sports Lottery is permitted to offer the Sports product.

There are two main game categories within Sports, single match betting and traditional football betting. Whilst both formats permit betting on FIFA Category A soccer matches (for example the English Premiership, European Champions League, the FIFA World Cup, etc.), single match betting differs from the traditional football betting category in two respects. Traditional football betting obliges the player to predict the outcome of every forthcoming match in a given period whereas in single match betting players can bet on just one event. In addition, single match betting players are not restricted to football betting since they can also bet on the United States’ NBA basketball tournament. Within the single match betting category there are two game sub-types: Jing Cai a product allowing pool or pari-mutuel betting on single matches or fixed odds betting on more than one match (multiples or accumulators) and Beijing single match (available in Beijing, Tianjing and Guangdong province only) where all bets (singles or accumulators) are pari-mutuel in nature.

Sports as a category grew by approximately 82% in 2014. This phenomenal growth rate has been attributed to the impact of the hugely popular FIFA World Cup which took place during the summer of 2014. While traditional football betting grew by just 14% in this period, single match betting grew by approximately 97% and now accounts for approximately 85% of the entire category. During 2014, new rules were approved for Sports that will see the permitted prize payout ratio increase to 73%. The impact of this increase is expected to be seen during 2015.

It is clear that the single match product and its fixed odds prize structure is particularly popular with Chinese players. This is consistent with our experiences in terms of the performance of our virtual sports betting games. Lucky Racing and e-Ball lottery also feature a fixed odds betting model and this gives us confidence that the roll-out of these virtual lottery games is likely to prove highly successful.

2. VLT

Video lottery terminals are networked self-service lottery terminals that facilitate rapid play of themed, graphically-rich lottery games that are not available for play via the other product categories. Industry estimates suggest that the Welfare lottery has an installed base of approximately 28,000 such terminals in approximately 1,000 VLT halls across China. Although extremely popular and growing rapidly, due to its relatively low base, the overall contribution to national lottery sales from the VLT product remains modest. Sales in 2014 were RMB29bn representing 10% of the national market. 2015 may be an interesting year for this product category in light of the trial VLT approval recently granted to the Sports Lottery.

3. Lotto

Lotto contributed sales of approximately RMB249bn during the year and remains by far the largest category. The annual growth rate of 17.7%, however, showed a decline from the previous year’s rate of 21.4%. The growth of the Lotto category is being driven by modern high (draw) frequency games (HFG) which grew at over 26% during 2014. The traditional daily or weekly draw games grew by just 9% which reflects their relatively maturity. In 2014, annual HFG sales exceeded traditional lotto draw sales for the first time.

We expect both the lotteries to continue to exploit the popularity of HFG. Since Lucky Racing, AGT’s proprietary game, is classified as a high frequency game we believe that our Virtual Sports Lottery business is likely to benefit from this trend through the planned national roll-out of Lucky Racing, for example.

4. Scratch

In 2014, sales of Scratch tickets were approximately RMB34.3 billion, a decline of approximately 2.4% from the previous year. Sales of the Scratch product are exhibiting a multi-year downward trend. Scratch accounted for approximately 9% of the total lottery market in 2014 compared to 11% and 15% in the preceding two years. It seems increasingly likely that the increase in the payout ratio of other products such as HFG has created an attractive substitutable product in the market whilst, unlike other products, Scratch sales have not benefitted from the nascent online/mobile distribution channel links that have been established with the retail network. Finally, the paper scratch product, like traditional draw based games in the Lotto category, is a relatively mature product in the China lottery market.